Morgan Stanley’s CIO Says Trump Alerted the Rest of the World to Leveraging Economic Firepower Against Trade Partners

A economist has noted that the second Trump administration has revealed how the U.S. constructed its new exceptionalism, implying that nations globally will now start using their own economic clout against trading partners.

During a global outlook roundtable held last week, the chief investment officer of Morgan Stanley Wealth Management— —stated that for decades, the U.S.’s robust economy has been supported by three key factors: monetary stimulus, fiscal stimulus, and

This mix was “incredibly potent” for corporate profits and expansion over the last 15 years, Shalett observed, as domestic policies boosted both consumers and businesses.

However, on Trump’s “Liberation Day” (April 2, 2025), the dynamics of global trade changed abruptly: The world’s biggest economy started implementing new agreements with all of its trading partners. China was the sole nation to retaliate. As tensions ease and global trade paths are reconfigured, numerous countries might be considering

Shalett commented: “Right now, we’re facing a scenario where, as the world becomes multipolar and China focuses on other nations while exporting disinflation, the rest of the globe is thinking, ‘Wow, suddenly my central bank might have an advantage. We can use monetary stimulus, and we need fiscal stimulus too because we have to invest in our own defense.’”

Unsurprisingly, global defense expenditures are poised to rise. NATO member states acceded to a U.S. request to raise the share of GDP allocated to defense. Earlier, NATO nations spent 2% of their GDP on their armed forces; this figure has now jumped to 5%.

Having addressed fiscal stimulus, the next question is whether nations can take advantage of lower-cost goods from China—products that are no longer a priority for U.S. buyers. Shalett’s argument appears valid here as well: stated in January that its exports were up substantially year-over-year, with a 6.6% rise in December.

Although exports are rising (totaling $357 billion), Chinese exports to the U.S. dropped 30% in December from the previous year—marking the ninth straight month of decline. This indicates that other countries are indeed importing the disinflationary goods that once targeted American consumers.

The last piece of the puzzle is a loosening of monetary policy, which many economies initiated in 2025. In the past year, the European Central Bank joined the Federal Reserve in continuing to cut and maintain low interest rates, as did the Bank of England. The same was true for the central banks of Australia, New Zealand, and Canada, among others. Brazil’s central bank has also recently signaled it will soon begin a rate-cutting cycle.

New leverage

Given this context, Shalett stated that countries will increasingly shift toward bilateral trade deals and will thus ask themselves: “‘What leverage do I have?’ Every nation is realizing, ‘Wait, I might actually have tools to use.’”

“Canada controls 90% of uranium processing capacity, which is vital for nuclear facilities; China holds 90% of rare-earth mineral capacity required for many electronics and battery manufacturing processes. Such factors are opening doors for other nations to adopt an economic strategy similar to what the U.S. has managed to—quote unquote—‘accomplish’ over the past 15 years.”

Accordingly, Shalett added: “In our view, maintaining a more globally balanced portfolio now appears logical. We believe this is a long-term trend worth investing in. It’s not just a minor trade tied to a 10% dollar depreciation; we think it’s somewhat more complex than that.”